Transcript Slide 1
Cuban Economics:
How Politics Has Changed the Course of Economic Growth and Stability Created By: Jason Zimmerman Martin Rugeroni Brittany Riley Martha Kramer Spring 2010 Econ 4311
Aim and Outline
Aim: To present and analyze how Cuba’s political
decisions have affected the course of its economic growth.
Pre-revolution Economy Revolutionary Period Evolution of the Embargo The Fall of the Soviet Union Economic Reform Recent Policy Changes Cuba’s Future
History
Spanish Colony until 1902
1902 US companies controlled 80% of Cuba’s nickel exports
Owned most sugar and cigarette companies
US began a massive public health program
1902 Cuba Independent Platt Amendment , great dependency from the US.
Cuba would not transfer Cuban land to any power other than the United States
The right to US intervention in Cuban affairs and military occupation when the US authorities considered that the life, properties and rights of US citizens were in danger.
1933 – Eight-hour day established.
1940 Fulgencio Batista elected president
1940 Modified the Constitution
Progressive ideas
Wages and Benefits
Land Reform
Education
Improvements in Media
Social Indicators
Why a Revolution?
A third of the population still lived in poverty
Distribution of land
Relations with the US
Urban violence
Corruption
Fidel Castro attempted to overthrow Batista in 1953 and failed.
The Revolution
26 th of July Movement, 1956.
United States imposed trade restrictions on the Batista administration
Batista Fled Jan 1, 1959
Castro took over
Persecution of opponents Labor unions were made illegal Land and property expropriation and nationalization.
Cuba also nationalized all United States and other foreign-own land and property
Castro went to the United States to explain his revolution. He said, "I know what the world thinks of us, we are Communists, and of course I have said very clearly that we are not Communists; very clearly."
The United States, in turn, responded by freezing all Cuban assets in the United States, severing diplomatic ties, and tightening the embargo on Cuba, which is still in place after 50 years.
In response to the acts of the Eisenhower administration, Cuba turned to the Soviet Union for support.
Cuban Relations with USSR
1960 – Cuba and Soviet Union sign trade agreement
– Soviet Union buys sugar – Cuba buys crude oil
U.S. oil firms in Cuba stop refining oil purchased from USSR
– Cuba nationalizes refineries
Start of the Embargo
President Eisenhower cancels most of Cuban sugar quota
Cuba retaliates
– expropriates all U.S. property – Discriminates against imports of U.S. goods
U.S. imposes export embargo to Cuba except for medicine and food
1961 – US-Cuban diplomatic relations are severed; US restricts travel to Cuba
Foreign Assistance Act - Total embargo on all trade
– Amendment included barring aid to countries
assisting Cuban government
Organization of American States (OAS) Leninist ideology is incompatible with inter American system
More Restrictions
1962 - Cuban Missile Crisis
– U.S. “quarantines” Cuba
Kennedy administration prohibits travel to Cuba
Financial and commercial transactions with Cuba illegal for U.S. citizens
Decreasing Restrictions
1975 – OAS lifts collective sanctions
– Each nation decides relations with Cuba
U.S. allows foreign subsidies of U.S. companies to sell products in U.S.
No longer penalize other nations for trade with Cuba
1977 - Congress repeals provision of Foreign Assistance Act of 1961
– No longer refuses aid to countries trading with
Cuba
1978 – U.S. residents allowed to send up to $2000 in remittances a year
Resurgence of Embargo Policies
1981 – Reagan inaugurated as president, initiates tighter economic embargo
1982 – Reestablished travel ban
Remittances reduced from $2,000 to $1,200 per year
Minimal Effects of the Embargo
By the late 1980s:
99% of Cuba’s oil came from the Soviet Union
Received oil at prices far below market value
Cuba had reduced oil-consumption
Re-exported surplus petroleum was 2nd largest export (after sugar)
Vessels from the Socialist bloc transported 85% of Cuban trade
85% of Cuban trade was with Council of Mutual Economic Assistance (COMECON)
– Transactions mostly in nonconvertible currency
Real GDP Per Capita
8000 7000 6000 5000 4000 3000 2000 1000 0 19 70 19 71 19 72 19 73 19 74 19 75 19 76 19 77 19 78 19 79 19 80 19 81
Year
19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 Brazil Chile Mexico Cuba
Openness
50 45 40 35 30 25 20 15 10 5 0 19 70 19 71 19 72 19 73 19 74 19 75 19 76 19 77 19 78 19 79 19 80 19 81
Year
19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 Brazil Chile Mexico Cuba
A Time of Transition
Late 1980s: Cuban-Soviet relations weakened as Soviet leadership moved away from Marxism
Late 1989: Cuba announced the Program
Alimentario
– Goal: improved self-sufficiency – Method: large investments in agricultural sector
A Special Period in a Time of Peace
August 1990 Cuba announced the Período
Especial
Originally created for a time of war
Established a framework to implement austerity measures
“Special Period”
New rationing schedules
200 goods added to the ration list
50% cut in energy consumption required
Reduced work hours at factories
Large cuts in public transportation
Encouraged use of animals for transportation/plowing in agriculture
The Fall of the Soviet Union
Late 1991: Gorbachev withdrew almost 3,000 troops from Cuba
– Symbolic significance: end of Cuban-Soviet ties
Christmas 1991: Soviet Union officially dissolved
Problems for Cuba
Weakened Cuban military
Major issue: loss of trade partners
External forces of the early 1990s:
– Decrease in sugar prices – Increase in oil prices – Vulnerable to U.S. actions
Changes in U.S. Policy
April 1992: Bush banned ships trading with Cuba from stopping at U.S. ports
September 1992: Bush instituted a limit on the humanitarian aid that U.S. citizens could send to Cuba
October 1992: Torricelli Bill
November 1992: stronger restrictions on baggage for people traveling to Cuba
Torricelli Bill: Cuba Democracy Act
Banned subsidiaries of U.S. companies in other countries from investing in or trading with Cuba
Ban included food and medical supplies (in 1992 this was 90% of Cuban trade with U.S. subsidiaries)
Torricelli Bill cont’d:
Authorized U.S. president to “punish” countries that provided aid to Cuba
– Withhold economic assistance – Withhold debt relief – Terms of free trade agreements
Strengthened the ban from 1992: ships trading with Cuba could not use U.S. ports for 6 months
– Cuba only capable of carrying 20% of its total
trade
1990-1993: A Cuban Crisis
Shortages
– Food – Oil – Medical Supplies
Drop in GDP per capita
Large budget deficits
Cuban GDP 1970-2007
160000000 140000000 120000000 100000000 80000000 60000000 40000000 20000000 0 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90
Year
19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture.
Pérez-López, Jorge F. "The Cuban Economy in an Unending Special Period." Association for the Study of the Cuban Economy (2002): 510. Print.
Consumer Goods
Commercial relations with the former Soviet Union decreased more than 90% from 1989 to 1993 ($8.7 billion to $750 million)
Shipments of consumer goods, grains and other foods declined
Consumer Goods cont’d
Supplies of clothing and soap became sparse
Rationing quotas supplied only enough food for 2 weeks of each month
– Increase in black market activity
Health
Over 300 medicines eliminated from pharmacies
About 800,000 Cubans with asthma went without necessary medication
1993: over 50,000 Cubans suffered from an epidemic of optic neuropathy as a result of a vitamin B deficiency
Health cont’d
Evidence of delayed marriages and a large drop in fertility rates
Surge of abortions: between 1988 and 1990, 9 abortions for every 10 births
Energy
Oil supply from the (former) Soviet Union decreased almost 90% from 1989 to 1992
Shortages led cuts in public transportation
Frequent power outages
Energy cont’d
Daily blackouts imposed
Closing of many industrial plants and factories
Estimated 50% of industrial plants suspended operations due to shortages of fuel and replacement parts
Agriculture
Imports of fertilizer decreased 80% and animal feed by 70%
Sugar crop declined from 8.1 million tons in 1991 to 4.2 million tons in 1993
1993 shortage of chicken feed resulted in a halt in egg production
Animals had to be used to replace tractors and other farm equipment
Other Problems
Shipments of raw materials and spare parts for industry ceased
March 1993: a winter storm caused more than $1 billion of damage and left over 150,000 people homeless
Paper shortage: lack of print media
Factory closings and transportation cuts left almost 20% of the population displaced
One Success: Tourism
In 1990 tourism brought in $243 million
Only sector that grew steadily
Revenues quadrupled in first half of the 1990s
1993 brought in more revenue than sugar
If not for embargo, would U.S. tourism change the Cuban economy?
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture.
Pérez-López, Jorge F. "The Cuban Economy in an Unending Special Period." Association for the Study of the Cuban Economy (2002): 513. Print.
Reform and Recovery
Summer 1993: Cuban government began policy reforms to stabilize the economy
Legalized the use of foreign currency
– Stop the growing black market for foreign
currency
– Stimulate remittances to citizens by relatives
abroad
September 1993: authorized self-employment
– Many restrictions – Only open to specific occupations – Had to pay fees and taxes
September 1993: broke up large state owned farms into cooperatives
– Owners could choose management, have own
bank accounts and sell the product
– Gave incentives for increased production
May 1994: adopted a policy for reduced expenditures and increased revenues
– Increased prices of cigarettes, alcohol, gasoline,
public transportation, etc
– Eliminated subsidies – Charged for previously free items- school
lunches, admission to sporting events, etc
September 1994: created markets where agricultural producers, once a quota was reached, could sell excess output at market prices (determined by supply and demand)
Price Equilibrium Ration Price S
Once producer reaches quota: -Sell at a higher price -Consumers not limited to ration stamp amounts
D Quantity
*Hybrid economy: transition from state-controlled/socialism to free market capitalism
September 1995: changed foreign investment law
– Allowed 100% foreign ownership – Simplified the process for foreign
investment
May 1997: reformed the banking system
– Creation of Banco Central de Cuba as an
independent institution
25000 20000 15000 10000 5000 0
Real Per Capita GDP in Cuba Year
Brazil Chile Mexico Cuba Peru Nicaragua
Pérez-López, Jorge F. "The Cuban Economy in an Unending Special Period." Association for the Study of the Cuban Economy (2002): 509. Print.
Success
Negative growth ended and GDP grew 0.7% in 1994
1993-2000 the average annual GDP growth was 3.8%
In 1993 the budget deficit was 33.5% of GDP, in 1996 it was 2% of GDP
Success cont’d
Exports increased 47.4% from 1993 to 2000
Imports increased 144.4% over the same period
By the end of the 1990s, growth was steady
In 2000, GDP was still 15.4% below the level of 1989
Remaining Problem: Embargo
1996: Congress passed the Helms-Burton Act
1998: report by the U.S. Defense Intelligence Agency stated, “Cuba does not pose a significant military threat to the U.S. or to other countries in the region."
New Decade
2000 - U.S. lifts ban on exports of certain agricultural goods
– Cash only sales – Cuba refused to buy goods for 1 year
Ban on imports from Cuba continues
Hurricane Michelle
2001 – Caused $1.8 billion in damages
U.S. offered direct aid to the people
Castro refuses aid
One time agreement to buy food and medicine from U.S.
– 1
st time Cuba agreed to import food from U.S.
U.S. Strengthened Restrictions
Passed in 2004
Family visits limited to once every three years instead of once per year
Maintain $1,200 transfer limit per year
Remittances and gifts only allowed to immediate family
Castro responds – ban on transactions in U.S. dollars
Transition Period
U.S. Commission for Assistance to a Free Cuba - recommends $80 million in aid when transitional government in place
2006 - Raul Castro takes temporary power
– “disposed to normalize relations” with the U.S.
2008 – Raul officially takes power
2008 Disaster Relief
2 Hurricanes hit Cuba within 10 days
– Destroyed about 30% of crops – About $9.7 billion in damages
U.S. offered $100,000 in direct aid after Hurricane Gustav
– Cuba refused
Offered $5 million in direct aid after Hurricane Ike
– Cuba initially refused
Loosening Restrictions
2009 – ban on Cuban-American travel to Cuba lifted
U.S. removes limit on remittances
Travel restrictions still in place for non Cuban-Americans
U.S. citizens cannot send money or gifts to government officials
Present
Trade embargo remains
– U.S. allowed to export certain agricultural
goods
– No Cuban imports allowed
U.S. largest supplier of food to Cuba
– 2008 – exported about $710 million – $2.9 billion total as of May 2009
Obama:
policy changes
Future of the Economy
Privatization
– Decrease government role – Redevelopment of activities that disappeared
due to political and ideological reasons
– Commercial sector is key
Large portion of employment
Offers investment opportunities
– Private journalism
Trade liberalization
– Open up economy – Licensing programs should be quick and
inexpensive
– Encourage privatization and investment
Social safety net
– Free health care, education, ration cards – Currently financed by government’s ability to
set prices/market
– Important to maintain security during
transition
– Seen as basic right by many Cubans
Conclusion
What is coming in Cuba’s future?
Is the U.S. embargo still justified?
Was it ever?
Is the Obama administration reasonable in waiting for Cuba to take the next steps?
Video
Sources
PWT 6.3
Alan Heston, Robert Summers and Bettina Aten, Penn World Table Version 6.3, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania, August 2009.
Deere, Carmen. "Cuba's Struggle for Self-sufficiency - Aftermath of the Collapse of Cuba's Special Economic Relations with Eastern Europe." CBS MoneyWatch Monthly Review (1991). CBS MoneyWatch. Web. 2 May 2010.
Griswold, Daniel. "Four Decades of Failure: The U.S. Embargo against Cuba." (2005). CATO Institute. Web. Apr. 2010.
Pérez Jr., Louis A. "Socialist Cuba." Cuba: Between Reform & Revolution. Oxford UP, 1995. 381-87. Cuba's Special Period. J.A. Sierra. Web. 2 May 2010.
Pérez-López, Jorge F. "The Cuban Economy in an Unending Special Period." Association for the Study of the Cuban Economy (2002): 507-21. Print.
More Sources
"BBC NEWS | Americas | Bush Approves New Squeeze on Cuba." *BBC NEWS | News Front Page*. 7 May 2004. Web. 25 Apr. 2010. < http://news.bbc.co.uk/2/hi/americas/3690697.stm> . "BBC NEWS | Americas | Timeline: US-Cuba Relations." *BBC NEWS | News Front Page*. 31 Dec. 2008. Web. 25 Apr. 2010. < http://news.bbc.co.uk/2/hi/americas/3182150.stm> . Hanson, Stephanie. "U.S.-Cuba Relations." *Council on Foreign Relations*. 11 Jan. 2010. Web. 25 Apr. 2010. < http://www.cfr.org/publication/11113/uscuba_relations.html> . Maybarduk, Gary H. "Measures Not Taken: Issues For Today And Tomorrow." Web. 25 Apr. 2010.
> .
Photo Sources
http://weblogs.sun sentinel.com/news/politics/dcblog/Cuba%20fla g.jpg